Dubai has attracted a large number of expats because of high standard of living and its popularity as a tax-free haven, with no income taxes imposed on individuals or businesses. Dubai does not tax income and a majority of products and services are tax-free. Many people believe that Dubai has no direct or indirect taxes. It is actually myth.
Government has imposed various taxes to diversify its revenue stream. Taxes are an integral part of the financial system in Dubai and throughout the UAE. If Dubai provides the best incentives to Emirati citizens, these benefits must be paid by the people through various forms of revenue. For those who wanted to know the kind of taxes they need to pay while doing business in or visiting Dubai, here is an overview of taxation in Dubai and the UAE.
Taxation systems are divided into two categories – direct and indirect taxes. Direct taxes are levied on individuals or businesses directly, while indirect taxes are imposed on goods and services.
Direct Taxes: Individual income tax, corporate tax for companies, capital gains tax, and property transfer fees and others.
Indirect Taxes: Value-added tax (VAT), excise duty, customs duties, tourism fees, real estate registration fees, and others. Taxes to Be Paid in Dubai
The Dubai taxation system is hugely popular because the government here imposes only a few taxes. The taxes in Dubai are:
Dubai is a tax haven where employees and workers are not subject to income taxes. The income from salary, benefits, investment income, dividends, residential property income, and capital gains will not be subject to income tax here. Also the new tax rules have provided additional tax relief and exemptions to startups and small businesses. Because of that, you won't have to worry about the Dubai income tax rate because you won't be charged any during your time working in the region. But if you are taxable in your home nation and make huge earnings in Dubai, you may be subject to taxation. These tax breaks do apply to freelancers also. So they have to acquire freelancer license and begin conducting business operations.
VAT was included in the Dubai’s taxation system in the year 2018. The VAT rate is 5% and is one of the lowest in the world. However, certain goods are exempt from VAT. Some personal protective equipment used during the COVID-19 pandemic, like medical and textile masks, single-use gloves, chemical disinfectants, and antiseptics, were exempted by the UAE in the year 2020. Other items and services subject to a VAT rate include:
Exports of goods and services outside the GCC Investment-grade precious metals Newly constructed residential properties Few education and healthcare services
Any VAT-registered enterprises can request refunds from the appropriate tax authorities by submitting a request along with the needed paperwork. Tourist purchases are subject to VAT. But they can ask for a VAT refund while in the Emirates. Companies operating in free-trade zones, the Dubai mainland, and offshore areas are all subject to VAT. If you engage in trading products and services outside the GCC or provide particular educational and healthcare services in the UAE, you will not be subject to VAT.
The excise tax was implemented in the UAE in the year 2017. It is an indirect tax applied on specified commodities that are detrimental to human health or the environment. This kind of tax is designed to minimize the consumption of these goods and also at the same time produce revenue for the government to spend on public services. The goods are called as "Excise goods".
The following definitions will determine whether or not a product is excise good:
The profits made by a company throughout the financial year are subject to corporate tax. Apart from the UAE tax framework, Dubai has its own set of corporate tax regulations that apply to companies. These taxes are applicable to gas and petroleum enterprises as well as foreign bank branches that operate in Dubai. The income of gas and oil companies will be taxed at a rate of 55%. The tax rate for global bank branches operating in Dubai is estimated to be 20%. However, dividends, interest, and royalty payments sent overseas are not subject to withholding taxes.
Dubai Free Zone provides a variety of tax incentives to international businesses looking for business spaces with a low-tax environment. There are Free Zone authorities that provide firm income tax exemptions for up to 50 years. The profits can also be freely transferred to other countries and there are no withholding taxes or capital gains taxes in the region.
The following are the indirect taxes levied by the Dubai government:
If you have a large company, you should definitely seek independent financial guidance on matters related to tax laws and obligations. Investors with an aim of opening a company in Dubai can depend on professional consultants such as Bizvise for setup assistance. We can also assist you in creating an understanding of taxation structure and laws in Dubai and UAE.
Drop in your contact details and we will call you back